Hogan Lovells has advised Reinsurance Group of America (RGA) on an index-based longevity swap transaction it has entered into with Delta Lloyd covering €12 billion of Delta Lloyd’s longevity reserves. The transaction completed on 22 August 2014.
This marks the first time that Delta Lloyd Levensverzekering N.V., the life insurance arm of the Dutch insurance, pensions and investments firm Delta Lloyd, has used the reinsurance market to transfer longevity risk.
This transaction, which has a duration of six years, provides Delta Lloyd with medium-term protection against the rising costs associated with increases in life expectancy.
The Hogan Lovells team advising RGA was led by London international debt capital markets (IDCM) partner James Doyle and corporate insurance partner Steven McEwan. They were supported by finance partner Ken Breken and senior associate Dylan Goedegebuure in Amsterdam; and IDCM associate Oliver West and corporate insurance associate Jan Buschmann in London.
Commenting on the transaction, James Doyle said:
“This transaction, which uses a derivative to transfer longevity risk between two insurance companies, shows the flexibility and innovation that is possible when two enterprising companies work together towards a common objective. Longevity risk is continuing to be a key area of focus in the insurance and pensions sectors, and we would therefore expect to see this type of transaction, including the increased use of derivatives, become more widespread in the market.”
Steven McEwan added:
“This longevity swap is a prime example of RGA’s capacity to work with its clients to design and implement creative solutions. It is likely to be of interest to many insurers as they prepare for the upcoming changes to capital requirements in Europe, particularly in relation to risks arising from increasing life expectancy.”
